Commercial building owner with renovation

[Rob]

I have a building owner that owns a building and will be renovating it to make it into a yogurt shop. He is hiring the contractors to do this. Besides the obvious, i.e. getting named as additional insured for liability protection for the contractor's activities, what carrier would write an actual GL policy while this is going on to protect the insured for suits brought against him by the actual contractor, should the contractor get injured on the property as a result of something for which the insured is legally liable?

[LadyBroker]

You can write a premises liability policy to protect the owner's interests, should someone become injured on the premises during construction, not due to construction activities. (kids climb fence at night, fall down in lot; passer-by slips and falls on the sidewalk, etc).

I don't know if the Contractor can sue for injury, since that would be a work comp issue that he should handle.

Any other thoughts?

[Rob]

You can write a premises liability policy to protect the owner's interests, should someone become injured on the premises during construction, not due to construction activities. (kids climb fence at night, fall down in lot; passer-by slips and falls on the sidewalk, etc).

I don't know if the Contractor can sue for injury, since that would be a work comp issue that he should handle.

Any other thoughts?

If the contractor is a sole prop without workers compensation or if he does have employees and is excluded from his own policy, couldn't he potentially sue for injury as a result of something on the premises not related to his own construction activities?

[pita3333]

OCP (Owners Contractors Protective) policy for the GL/Premises and COC/Builders Risk/Installation Floater for the materials.

That is if he is NOT acting as his own general...if he is...then standard GL for general will do the job. So long as the entities are the same.

[Rob]

OCP (Owners Contractors Protective) policy for the GL/Premises and COC/Builders Risk/Installation Floater for the materials.

That is if he is NOT acting as his own general...if he is...then standard GL for general will do the job. So long as the entities are the same.

He may or may not be acting as his own general, he hasn't decided yet.

I see a problem with the OCP solution because the OCP insuring agreement specifies only two sources of liability for which coverage will be provided and those are either the operations of the contractor for the named insured OR the named insured's acts or omissions in connection with its supervision of the named contractors work at that location. So if someone was injured on the property and the injury was not as a result of the contractor's operations that would be a problem since the OCP will only cover vicarious liability. Agree?

[lfarringer]

Most small business and residential construction in our area is now conducted with a GC acting as a central figure using 100% subbed labor for the actual work. Your building owner may have a large amount of coverage under the AI endorsement (if it is the right one) of the GC. That is, provided that the GC pays the subs and the owner does not. He still needs his own GL policy though, either way.

The only difference is going to be at audit and who gets to pay for these insured and uninsured subs, him or the GC? Your best option is to run all of the subs costs through the GC's books and let him pay the insurance charges under his policy and let him worry about the audit. That way your owner will not appear to be acting as his own General Contractor. Otherwise, he and the GC that he hires will be splitting the insurance bill on the project.

Beware of the ISO GC2294 endorsement which excludes the subcontractor's "Your Work" from the exception to the "Your Work Exclusion" on the GL policy. Yes, it is a bit tricky the way it is worded. The basic GL policy says that "Your Work" is not covered and then it excepts work done by subs at the named insured's direction. The GC2294 removes the exception so that the entire project is considered "Your Work" and is not covered under the GL. The intent is to not allow the GL policy to be used as a warranty of the work done.

Many companies who write GL on GC's without the CG 2294 will require a written subcontract agreement with a good transfer of risk in it and other points of interest such as making the sub's policy primary, and naming the GC as AI under specific endorsement ISO numbers and possibly requiring a per project aggregate instead of per policy year. It is so complicated that the owners and contractors need insurance professionals to help them figure it out. People like us!

[Rob]

Most small business and residential construction in our area is now conducted with a GC acting as a central figure using 100% subbed labor for the actual work. Your building owner may have a large amount of coverage under the AI endorsement (if it is the right one) of the GC. That is, provided that the GC pays the subs and the owner does not. He still needs his own GL policy though, either way.

The only difference is going to be at audit and who gets to pay for these insured and uninsured subs, him or the GC? Your best option is to run all of the subs costs through the GC's books and let him pay the insurance charges under his policy and let him worry about the audit. That way your owner will not appear to be acting as his own General Contractor. Otherwise, he and the GC that he hires will be splitting the insurance bill on the project.

Beware of the ISO GC2294 endorsement which excludes the subcontractor's "Your Work" from the exception to the "Your Work Exclusion" on the GL policy. Yes, it is a bit tricky the way it is worded. The basic GL policy says that "Your Work" is not covered and then it excepts work done by subs at the named insured's direction. The GC2294 removes the exception so that the entire project is considered "Your Work" and is not covered under the GL. The intent is to not allow the GL policy to be used as a warranty of the work done.

Many companies who write GL on GC's without the CG 2294 will require a written subcontract agreement with a good transfer of risk in it and other points of interest such as making the sub's policy primary, and naming the GC as AI under specific endorsement ISO numbers and possibly requiring a per project aggregate instead of per policy year. It is so complicated that the owners and contractors need insurance professionals to help them figure it out. People like us!

Ok so what happens if the GC sues the owner for injuries to himself as a result of a hazard on the property not related to the construction (excluding fright hazards)?

[lfarringer]

Rob,

My opinion is that your Building owner still needs his own GL policy. Whether he uses insured subs or contracts with them direct merely goes to who pays the most premium for the exposures.

LOU

[Rob]

Rob,

My opinion is that your Building owner still needs his own GL policy. Whether he uses insured subs or contracts with them direct merely goes to who pays the most premium for the exposures.

LOU

Agreed. So I need to find a carrier that will write a GL policy for him while he has renovation occuring. I sent a request to one underwriter and she sent me an OCP application and I explained just as I did above why that wouldn't work. As of now, no response from her.

[lfarringer]

Rob,

It is going to be pretty hard to set him up as if he is a general contractor with all of those GL codes on a policy if he is not licensed as a general contractor. Most insurance companies do not like the OCP form as they think it exposes them to too much risk for too little premium. You might approach a competent underwriter at Auto Owners if you can get to them. Another one likely to do you a favor would possibly be Cincinnati Insurance Company if you have a profitable book of business with them. Or call on your favorite comany for an agency accomodation if this guy is a big enough client for you. Other than that, TAPCO or CRC would be my next choice. They are brokers with access to many different E & S Markets. Coincidentally they are owned by my parent company.

One other angle may be to approach the carrier with whom you intend to place the permanent property and liability coverage and ask them to put the GL coverage in force a little early for the favor of getting the rest of the business when it is complete. Ya never know until you ask!

[LadyBroker]

Hi Rob,

while I love your posts, I find too often we get way out into the realm of what if...and lose track of the actual issue.

If I could summarize, you have a client risk that May or May Not be a GC, for a renovation of a small business from something into a Yogurt shop. My guess is going to be that if tyour client reads the contract with the Building Owners, he will find that the renovations have to be done by a licensed GC, which would clear up the first point. If your client isn't a licensed GC, then he has to hire one. That would then push the Construction liability onto the GC. Your client would be named as an AI on their policy, as well as would be the building owner. Then your client would get an OCP to cover the premises liability during the build. If your client is in fact a GC, then he would have to provide the insurance for the build itself, and also secure an OCP for his exposures as the tenant of the property in question.

The GC would be responsible for ensuring that all his subs, as well as his employees, are properly insured, and that would mean work comp if warranted. If the sub or the GC does not have work comp, then that can be it's own issue. If they don't have it because they have no employees, that's one thing. If they don't have work comp because they chose not to, then perhaps let's not hire them.

Does this help at all? I am just envisioning your client getting OCP quotes from other retailer with ease while we debate these really fine points, and i would like to see you write this account!

[Rob]

Hi Rob,

while I love your posts, I find too often we get way out into the realm of what if...and lose track of the actual issue.

If I could summarize, you have a client risk that May or May Not be a GC, for a renovation of a small business from something into a Yogurt shop. My guess is going to be that if tyour client reads the contract with the Building Owners, he will find that the renovations have to be done by a licensed GC, which would clear up the first point. If your client isn't a licensed GC, then he has to hire one. That would then push the Construction liability onto the GC. Your client would be named as an AI on their policy, as well as would be the building owner. Then your client would get an OCP to cover the premises liability during the build. If your client is in fact a GC, then he would have to provide the insurance for the build itself, and also secure an OCP for his exposures as the tenant of the property in question.

The GC would be responsible for ensuring that all his subs, as well as his employees, are properly insured, and that would mean work comp if warranted. If the sub or the GC does not have work comp, then that can be it's own issue. If they don't have it because they have no employees, that's one thing. If they don't have work comp because they chose not to, then perhaps let's not hire them.

Does this help at all? I am just envisioning your client getting OCP quotes from other retailer with ease while we debate these really fine points, and i would like to see you write this account!

Hi! Thanks for your input. Let me clarify: He IS the building owner. He is not a contractor. He wants to protect himself should one of the contractors sue him should they get hurt while on his property.

He was saying he might hire all the subs himself to save some money or hire a GC and asked for my advice on that as well. He has other lines with me and he, as far as I know, hasn't talked to any other brokers and is relying on me to come up with a solution.

Also if you check out my post about a commercial building with paranormal activity it is related to this. His yogurt shop might be turning into something else that I "fear" may not be insurable.

[lfarringer]

In Tennessee, one does not have to be a licensed contractor to hire subs to remodel different aspects of their own building. The problem comes in underwriting such a risk. No standard company wants to take on the BI & PD long term exposures of a non licensed owner acting like a GC. OCP insurance in a standard company does not get enough money to offset the presumed higher risk and most companies will not issue a GL policy with contractor codes on it to an unlicensed person or organization. Thus the reliance on a surplus lines market.

[Rob]

In Tennessee, one does not have to be a licensed contractor to hire subs to remodel different aspects of their own building. The problem comes in underwriting such a risk. No standard company wants to take on the BI & PD long term exposures of a non licensed owner acting like a GC. OCP insurance in a standard company does not get enough money to offset the presumed higher risk and most companies will not issue a GL policy with contractor codes on it to an unlicensed person or organization. Thus the reliance on a surplus lines market.

I think everybody is missing the point here. Let's try this:

A building owner comes to you and and says I need liability insurance on my building because I'm having some renovation done and I want to be protected if one of the contractors sues me. What do you do?

[Shagster12]

Ok Rob here's my two cents:
Cut through all the 'what ifs' and advise him this;
DON'T do the work yourself, hire a fully licensed and insured GC to do the TI and assume the liability for the project, that's why Contractors contract! Then get AIs for the Liability and Work comp policies.
Worry about the insurability of the new operation once the new operation is built.
End of story....